Itaú Unibanco’s Core Lending Power, 24.3% ROE Overshadow Service Revenue Guidance Cut in Q2

Itaú Unibanco (ITUB4), one of Brazil’s largest private-sector banks, delivered a recurring net income of R$ 12.41 billion in the second quarter of 2026, marking an increase of approximately 8% year-over-year. The bank reinforced its position as a sector leader by maintaining a robust annualized Return on Equity (ROE) of 24.3% for the quarter. However, the key takeaway for investors remains a strategic downward revision to its full-year guidance for service and insurance revenue growth, which was cut from the original range of 5-9% to a new range of 2-5%. The market reaction to the softer outlook on fee income was immediate, with shares of ITUB4 trading down 2.48% on the B3, against the broader Ibovespa (IBOV), which was largely flat, down only 0.06%.

The mechanism behind the strength that continues to underpin Itaú’s stock—despite the cautious revenue revision—is the performance of its core lending machine. Net Interest Income (NII) with clients, the primary driver of bank profitability, rose 5.2% in the quarter to R$ 33.5 billion, signaling that the engine of the business remains robust. This strength in NII is effectively compensating for the slower growth in non-interest fee and service revenues, a segment facing increasing competition from financial technology and digital banks. Furthermore, the bank’s asset quality remains stable, with the critical 90-day non-performing loan (NPL) ratio holding firm at a controlled 1.9% for the quarter.

For investors, the contrast highlights a strategic trade-off. While service fees are often viewed as high-quality, low-risk revenue, the bank's ability to maintain a superior ROE is driven more fundamentally by its highly profitable credit operations and stringent cost management. The stable NPL ratio in an environment of still-high Brazil interest rates (Selic) shows management’s discipline in credit origination, which is a far more material driver of long-term value than the pace of fee-based growth.

Looking ahead, Itaú's decision to maintain its full-year guidance for its credit portfolio growth, cost of credit, and non-interest expenses suggests confidence in the durability of its core earnings power. The focus shifts to whether the pressure on fee income, often related to payments, cards, and asset management, is a temporary normalization following a high-growth cycle or a structural deceleration due to increased competition. Investors should monitor future guidance revisions and the trajectory of Brazil’s benchmark Selic rate, as continued high rates favor the bank’s NII, providing a buffer against the softer performance in service revenue.